One of the little-noticed but very important benefits of GSE status is access directly to the fed-funds market.  In recent years, the GSEs and most importantly the Home Loan Banks have used this access to become major overnight lenders to U.S. and foreign banks, essentially replacing large banks in the interbank lending market.  In this analysis, we describe this activity, note its role in last week’s repo-market turmoil, and assess what the Fed might now want FHFA to do about it.  The Administration plan already has liquidity regulation on the to-do list; in light of recent developments, it could well join capital standards as a top-priority FHFA initiative.  If it does, liquidity regulation will have structural implications not just for global money markets, but also the cost of U.S. mortgage securitization and the role of private capital.

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